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Reports in the Taiwanese press said yesterday that both Compaq and Big Blue are to cut original equipment manufacturers (OEMs) on the island out of their manufacturing loop in 1999. And other worldwide PC companies are likely to follow in a bid to slash their costs, affected by the much lower prices of PCs in the shops. The reports may form part of a revised Compaq strategy, in which its OEM division may be floated off as a separate company. Over the Yule period, Compaq has made a number of changes to its overall strategy, including ditching its networking division and cutting another 3,000 jobs worldwide. Last month, IBM abandoned its attempts to sell PCs through two tier distribution, while just before Christmas, Hewlett Packard announced its plans to sell more of its PC and printer products direct. These companies are reacting to the success of the Dell Corporation. The reports claimed that both Compaq and IBM will now locally source a number of components including displays and storage devices without recourse to OEMs. It is an open secret in the industry that big US PC players have allowed locally based company to build notebooks and desktop PCs for them for some years. Now they just want Taiwanese companies to make the components, such as semiconductors, displays, and CD ROMs. Giant OEM Acer is likely to be the worst affected, but a number of other companies, including Mitac, also make products for PC companies. Acer is already reeling from poor financial results, largely caused by its DRAM business. While Taiwan now has large semiconductor fabrication plants, the news will be a blow for the island. Many of its small businesses and a high proportion of its exports are funded by the PC industry. Earlier this year, officials representing the Computex Trade Fair reported a far smaller number of foreign visitors than in previous years. ®